Business Taxes

Chapter 9Annual Payments

AIM

To teach students about the operation of withholding tax from annual payments.

LEARNING OUTCOMES

Once you have studied this chapter, you should be able to:

9.1 Conclude on the application of withholding tax under Irish domestic legislation 242
9.2 Explain the administrative requirements for withholding tax 244
9.2.1 Patent royalties and annual payments 244
9.2.2 Interest 244
9.2.3 Loans to participators 245
9.2.4 Others 246
9.2.5 Accounting for dividend withholding tax on royalties and interest 247
9.3 Judge if withholding tax applies, calculate the withholding tax, identify the tax return entries required and outline the appropriate accounting treatment 250

PRE-READING

Capital Taxes Fundamental Manual

Chapter 16: Withholding tax provisions

Personal Taxes Manual

Chapter 13: Withholding taxes on rental income/expenses

Chapter 31: Withholding taxes which apply to individuals

MAIN LEGISLATIVE PROVISIONS

Part 8, Chapter 2 of Part 13, Part 18, sections 104(7), 122A, 848A, 980, 1041(1) and 1095 of TCA 1997

FURTHER READING

Corporation Tax, Finance Act 2010, Irish Tax Institute

Chapter 8 Close Companies

Chapter 15 Corporation Tax Computation

The Taxation of Capital Gains, Finance Act 2016, Irish Tax Institute

Chapter 14 Administration

9.1.Conclude on the application of withholding tax under Irish domestic legislation

Withholding tax in Ireland is operated under a number of different guises ranging from the deduction of income tax at the standard rate from “annual payments” (as you looked at in Chapter 2), to the deduction of amounts from fees and services prior to payment to the provider.

Withholding tax is also deducted in certain property transactions.

9.1.1.Deduction of income tax on relevant payments

An Irish resident company must deduct income tax at the standard income tax rate (currently 20%) when making relevant payments. A relevant payment is defined in Section 239(a) TCA 1997 and includes “any payment from which income tax is deductible and to which subsections (3) to (5) of Section 238 apply”.

Types of relevant payments include:

1. Annual interest (subject to exceptions discussed in the next section below) (Section 246 TCA 1997).

2. Rents paid to Non Irish Residents in respect of property in the State (Section 1041(1) TCA 1997).

3. Patent Royalties (Section 237(2) TCA 1997).

4. Loans to participators in close companies (Section 438(1)(a) TCA 1997) discussed in Chapter 8 and included in the definition of “relevant payment” in Section 239 TCA 1997.

5. Medical insurance premiums or long-term care policy premiums (Section 112A TCA 1997).

6. Distributions by Irish resident companies (Section 172B TCA 1997)

Income tax at the standard rate (currently 20%) is deducted from any such relevant payment and must be paid over to the Revenue, under Section 239(5) TCA 1997 at the same time that the company is required to pay its corporation tax liability for an accounting period (i.e. it is included in determining the preliminary tax and balance of tax payments that a company is required to make for corporation tax purposes). See Chapter 14 for a full discussion on preliminary tax payments.

Where a company receives an annual payment from which Irish income tax has been withheld, the tax withheld at source is deductible against its own corporation tax liability.

9.1.2.Deduction of withholding tax on non-relevant payments - Professional services withholding tax (PSWT) & relevant contracts tax (RCT)

The Personal Taxes: Application and Interaction module discusses the operation of professional services withholding tax (Section 520 TCA 1997) and relevant contracts tax (Section 530 TCA 1997).

These withholding taxes apply to companies in the same way that they apply to individuals, including the operation of the taxes and how credit is obtained for taxes suffered.

PSWT is levied at the standard rate of income tax (currently 20%).

RCT is levied depending on the tax compliance levels of the subcontractor at rates of either 0%, 20% or 35%.

Capital gains tax

The other main withholding tax is capital gains tax on the sale of certain specified assets which is set out in Section 980 TCA 1997 and covered in Part 1.

The primary aim of this legislation is to collect capital gains tax on the disposal by non residents of certain assets where later collection may prove difficult. The rules apply to all disposals by both non-resident and resident tax payers.

On the sale of certain specified assets the person by whom or through whom payments are made is obliged to withhold an amount of CGT from the sales proceeds and pay it over to the Revenue if the sales proceeds exceed €500,000 (Section 980(3) TCA 1997). From 1 January 2016 the limit is €1,000,000 in the case of residential property.

The rate of withholding tax is 15% and is chargeable on the full sale proceeds.

A vendor can apply to the Revenue for a tax clearance certificate (CG50) so that they can obtain the proceeds without deduction of withholding tax. The tax clearance certificate must be provided by the vendor to the purchaser prior to payment of the consideration in order for the purchaser to avoid the obligation to operate the withholding tax.

9.2.Explain the administrative requirements for withholding tax

9.2.1.Patent royalties and annual payments

For corporation tax purposes, if a company is carrying on a trade and pays a patent royalty for the purpose of its trade, it is treated as a relevant trade charge (see Chapter 4). In other circumstances payments of patent royalties can be non-trade charges.

When a patent royalty payment is being processed, withholding tax at the standard rate of income tax (currently 20% of the gross amount due) must be withheld.

The company must pay the tax withheld with its corporation tax liability for the period in which the amount was deducted (Section 239 TCA 1997).

The patent royalty holder will be taxed on the gross amount with a deduction for the income tax withheld by the company. Instead they will be entitled to a tax credit for the amount of the withholding tax against their tax liability for the tax year/accounting period.

Therefore if a company reaches an agreement for a monthly patent royalty payment of €1,000, it will pay €800 net per month to the holder of the patent and withhold €200. At the end of the year it will include the €2,400 (€200 × 12) withheld in its tax computation and CT1 tax return and provide the patent royalty holder with a Form R185 for each calendar year which sets out the gross payment and tax withheld. This form can then be used by the patent royalty holder to set the withholding tax against his own tax.

Withholding tax must also be operated on other annual payments, such as deeds of covenant etc.

9.2.2.Interest

As a general rule, withholding tax at the standard rate of income tax (currently 20%) must be operated on all yearly interest payments subject to the exceptions noted below. Payments of “short” interest are not subject to withholding tax (i.e. payments where the obligation to make the interest payment is not capable of extending beyond one year).

The company must pay the tax withheld with its corporation tax liability for the period in which the amount was deducted (Section 239 TCA 1997).

As with patent royalties, the tax is stopped on each payment due and a Form R185 is issued at the year end.

Section 246(3) TCA 1997 sets out the main exceptions to the obligation to operate withholding tax on interest payments. These include:

1. Interest paid to a bona fide bank or building society in the State (Section 246(3)(a) TCA 1997)

2. Interest paid in the course of a trade to a resident of a country which:

generally taxes interest income or

has a double tax treaty with Ireland providing for no withholding tax (whether the treaty has the course or law or not) (Section 246(3)(h) TCA 1997)

3. Interest which is a distribution under Section 437 TCA 1997 i.e. paid to a director by a close company in excess of a certain prescribed amount (Section 246(3)(g) TCA 1997), see chapter 8.

4. Section 246(3)(bb) and Section 246(5) TCA 1997 allow companies pay interest gross to non-banks where the interest will be included in computing the trading income of the recipient (e.g. Treasury companies).

A bank is obliged to deduct DIRT (Deposit Interest Retention Tax) from any deposit interest due to a customer prior to crediting the interest to that customer’s deposit account (Section 257(1) TCA 1997).

Where a company receives deposit interest from which DIRT has been deducted the following steps should be followed:

1. Deduct the deposit interest included in the Accounts from the profit/loss per the accounts in calculating the Case I tax adjusted income as this is income from another source.

2. Include the gross equivalent of the deposit interest actually received in the Accounting Period (i.e. receipts basis for amount credited to deposit account) under Case IV (Section 261 TCA 1997) and tax at the higher rate of corporation tax (Section 21A TCA 1997). This Case IV income is calculated by multiplying the amount received by 100/61.

3. The DIRT actually withheld is deducted from the corporation tax liability on the total profits for the accounting period to give the net amount payable by the company. Where an insufficient or no corporation tax liability arises due to trading losses, etc. the DIRT withheld may be refunded in whole or in part. There is an automatic requirement on banks to issue DIRT certificates so the company should ensure that it receives a DIRT certificate from the bank to support its claim for tax refund or offsetting against corporation tax.

Note that the Case IV income included in the corporation tax computation may differ to the accounts figure deducted because this source of income is taxed on an actual receipts basis. The UK courts have held that interest is only taxable when actually credited to the bank account (Girvan V Orange Personal Communications Services Ltd. [1998] STC 567).

Section 256(1) TCA 1997 grants a DIRT exemption to qualifying companies who provide the relevant deposit taker with their tax reference number. This means that deposit interest paid to such companies is not subject to DIRT.

Key Point

Companies cannot pay interest gross unless specifically exempt from withholding tax e.g. payment to a bank

9.2.3.Loans to participators

Loans to participators affected under Section 438 TCA 1997 are regrossed and income tax at the standard rate (currently 20%) is deducted from the regrossed amount and paid over to the Revenue.

The company must pay the tax withheld with its corporation tax liability for the period in which the amount was deducted (Section 239 TCA 1997).

The income tax paid by the company with the tax return is repayable upon application to the Inspector of Taxes, generally with the corporation tax return for the year in which the participator repays the loan.

In this situation a Form R185 is not issued as the participator is not taxed on the loan received. He may however be liable to BIK through payroll if the loan is a preferential loan and he is an employee or director of the company.

9.2.4.Others

Rents payable to non-resident landlords

Under Section 1041 TCA 1997 rents payable to non-resident landlords must have income tax deducted at the standard rate (currently 20%) and this tax must be paid over to the Inspector of Taxes with the CT return for the period.

As with royalty and interest payments a Form R185 will be provided for each calendar year.

Professional services withholding tax

The tax is deducted by “accountable persons” (mainly government bodies, etc.) from payments for professional services at the standard rate of income tax (currently 20%). PSWT is applied to the VAT exclusive amount due to the supplier (Section 520(1) TCA 1997).

The tax withheld is paid by the accountable persons to Revenue on a monthly basis.

The supplier that has suffered the tax receives an F45 certificate for each deduction, which sets out details of the amount deducted. The supplier must provide the original F45 certificates to Revenue in order to claim a tax credit for the amount suffered against its corporation tax liability for the period. In general, F45’s are filed with a company’s annual CT1 return. In limited circumstances, the Revenue may issue interim refunds subject to certain conditions. Non-resident companies that do not carry on a trade or business in Ireland are entitled to claim an immediate refund of PSWT suffered on any payments made to them. For example, a UK law firm providing services to NAMA that is not otherwise within the charge to Irish tax may claim an immediate refund of PSWT suffered on payments received from NAMA.

Relevant contracts tax

The tax is deducted by “principals” engaged in construction, meat processing or forestry operations (Section 530(1) TCA 1997) from payments made in respect of services (but not goods) provided by subcontractors to the principal in the course of the principal’s trade.

It is deducted from the charge for the service (excluding VAT) at either 0%, 20% or 35% depending on the subcontractors level of tax compliance.

The tax withheld is paid by the principal to Revenue on a monthly basis.

The company which has suffered the tax receives a deduction authorisation certificate for each deduction, which it can set against any of its tax liabilities. It can obtain a refund for the balance once its tax return for the period has been filed.

It is possible to have the payments made at the 0% withholding rate if the subcontractors tax affairs for the current period and 3 prior years are in order.

Capital gains tax

Capital gains withholding tax at the rate of 15% is deducted from the proceeds of the sale of specified assets by the purchaser prior to the payment of the agreed price to the vendor.

The due date for accounting for the 15% CGT withheld is 30 days from the date the consideration is paid (Section 980(5) TCA 1997).

The tax does not have to be withheld by the purchaser of the land or other specified asset where the company is able to produce a clearance certificate from the Inspector of Taxes authorising the payment to be made gross (Form CG50).

Current in-date tax clearance certificates (Section 1095 TCA 1997) or a 0% relevant contract tax rate (Section 530G TCA 1997) issued to the vendor may be presented to the purchaser in respect of newly constructed houses. This is regarded as sufficient authority to allow the purchaser not to deduct the withholding tax. This provision is contained in Section 980(8A) TCA 1997 and allows these certificates to be used by the vendor/builder for the sale of any number of houses during the period of the relevant certificate.

Section 980(8) TCA 1997 allows agents (solicitors/tax practitioners) to apply for clearance certificates on behalf of their clients, to improve efficiencies in the compliance process.

An Irish resident taxpayer (including a company) is entitled to a clearance certificate as a right provided he submits the necessary application in time. Revenue will generally not issue a certificate to a non-resident individual or a non-resident company unless it can be proven that no capital gains tax is payable or the non-resident pays the CGT liability in advance.

The purchaser will pay the withholding tax directly to the Collector General with the instruction to have it credited to the capital gains tax account of the vendor. Any withholding tax withheld is used as a credit against the ultimate corporation tax on chargeable gains or capital gains tax liability of the vendor. If there is any excess, it will be refunded by Revenue.

Usually, the Revenue Commissioners will not issue a clearance certificate after the date upon which the withholding tax should have been deducted (i.e. the date the consideration is paid).

There is a specific rule in relation to non-monetary consideration. For example, when the consideration of the purchase of an asset is shares in the purchaser (or some other non-monetary consideration), the purchaser must still pay over 15% of the purchase price to the Revenue (assuming the agreed price is greater than the €500,000 or €1,000,000 thresholds). He is then entitled to recover this amount from the seller as a simple contract debt. The seller is entitled to use the tax paid by the purchaser as a credit against his tax liability on the disposal if he can prove to the Revenue that he has reimbursed the purchaser (Section 980(9)(e) TCA 1997).

9.2.5.Accounting for dividend withholding tax on royalties and interest

As with dividends, there will be slight differences between what is booked in the accounts as royalties or interest and what tax law classifies as royalties or interest. It is important to check exactly what is meant by the royalties and interest transactions.

Royalties and interest payable

Withholding tax on royalties and interest expenses is more visible in the accounts than withholding tax on dividends payable (Chapter 8). Royalties and interest are an expense which affects a business’s bottom line and withholding taxes can increase that expense.

Sales contracts ordinarily allow for a customer to deduct any withholding tax lawfully due under the Irish tax regime. Some contracts allow the supplier to treat the withholding tax deducted as an underpayment (that will be chased by their credit control department) until they receive a certificate of withholding tax deducted. Once the certificate is received the supplier recognises that the withholding tax was lawfully applied and their credit controllers stop chasing for payment.

Under a normal sales contract the journal entries to reflect withholding tax deducted will be:

Dr. Royalty/interest [Statement of Comprehensive Income]
Cr. Payable account [Statement of Financial Position]

With gross royalty/interest accrued

Dr. Payable account [gross amount][Statement of Financial Position]
Cr. Current tax account [Irish withholding tax deducted][Statement of Financial Position]
Cr. Bank [net payment to supplier]

With the payment of royalty/interest

Dr. Current tax account [Statement of Financial Position]
Cr. Bank

With payment of withholding tax with corporation tax liability to Collector General

A certificate of tax deducted should be sent to the supplier as soon as the withholding tax is withheld.

Example 9.1

Com Ltd an Irish company with a 31 December year end acquired a licence to produce accounting software in Ireland from an individual, Joe Lawlor. In return for this licence it pays Joe Lawlor a royalty equivalent to 10% of its gross revenues from the sale of the accounting software each year. The royalty should be paid one month after Com Ltd’s year end. Irish tax law requires that Com Ltd deduct 20% withholding tax from this royalty.

In 2016 Com Ltd had gross income from the sale of the accounting software of €500,000.

The gross royalty is €50,000 [€500,000 × 10%]
The withholding tax is €10,000 [€50,000 × 20%]
The net royalty is €40,000 [€50,000 – €10,000]

The journal entries to reflect this royalty in Com Ltd’s accounts will be:

December 2018:

Dr. Royalty expense €50,000 [Statement of Comprehensive Income]
Cr. Joe Lawlor payable €50,000 [Statement of Financial Position]

With the 2018 royalty accrued

January 2019:

Dr. Joe Lawlor payable €50,000
Cr. Current tax account €10,000 [Statement of Financial Position]
Cr. Bank €40,000

With the payment of royalty

(With certificate of tax deducted sent to Joe Lawlor)

The €10,000 withheld from the royalty payment will be paid to the Revenue with the corporation tax liability

9.3.Judge if withholding tax applies, calculate the withholding tax, identify the tax return entries required and outline the appropriate accounting treatment

9.3.1.Annual payments and interest

Example 9.2

I Ltd. had the following results for the year ended 31st December 2018

Trading profits 180,000

1) after charging the following amounts

Depreciation

7,000

Patent royalties (paid July ’18) (net)

8,000

3 year covenant to UCD (paid Aug ’18) (net)

16,000

2) after crediting

Bank interest received - November 18 (Net rec’d €5,040)
The company has credited the net interest and DIRT deducted to the Statement of Comprehensive Income

8,000

Bank Interest received gross – November

1,000

Calculation of I Ltd.’s tax liabilities for y/e 31.12.18 as follows:

Under Section 239 TCA 1997 the company must withhold tax at the standard rate of income tax (currently 20%) from the patent royalty and UCD covenant.

The bank has withheld DIRT at 37% on interest payable to the company under Section 257 TCA 1997. The company is liable to tax under Case IV on this income (Section 261 TCA 1997). If the company had provided its tax reference number to the Bank as set out in Section 256 TCA 1997, the bank could pay the interest gross and the company would be liable to tax on the gross interest under Case III.

Corporation Tax computation for the year ended 31st December 2018:

Case I: Profit per Accounts 180,000
Addback:
Depreciation 7,000
Patent royalties (Note 1) 8,000
Covenant to UCD (Note 2) 16,000 31,000
Deduct:
Covenant to UCD 20,000
Bank interest 8,000
Bank interest 1,000 (29,000)
Case I 182,000
Less: Relevant trading charges, s. 243A TCA 1997 (10,000)
Patent royalties (8,000 + 2,000)
172,000
Case III 1,000
Case IV (5,040 + 2,960) 8,000
Total Income 181,000
Taxable Profits 181,000
Corporation Tax
1.1.18 – 31.12.18
1) Passive Income @ 25%
Case III 1,000
Case IV 8,000
9,000
2) Trading Income
Case I (after trade charges) 172,000
Tax: €172,000 @ 12.5% 21,500
€9,000 @ 25% 2,250
23,750
Add: Income Tax deducted/withheld on
– Patent Royalty 2,000
– Covenant to UCD 4,000
Less: Income tax suffered on interest received (Note 3) (2,960) 3,040
Net Corporation Tax Payable 26,790

Notes:

1) The patent royalty is a relevant trade charge as outlined earlier in this manual. A corporation tax deduction is available for the gross amount (i.e. before deducting withholding tax under Section 239 TCA 1997) of patent royalties paid in the period against the trading income, with relief available for excess trade charges on a value basis (Section 243A TCA 1997 and Section 243B TCA 1997). The net patent royalties of €8,000 are added back to determine the tax adjusted Case I profits, and the gross amount of patent royalties paid; i.e. €10,000 (€8,000/80%), is set-off against the trading income of the period. The company is obliged to withhold €2,000 income tax (Section 239 TCA 1997) from the royalty payment and pay this amount to Revenue with its corporation tax for the period.

2) The 3 year covenant payable to UCD is an annual payment to which Section 239 TCA 1997 applies such that I Ltd. is obliged to apply withholding tax to the payment and pay this over with its corporation tax liability for the period. The payment under the covenant would qualify as a relevant donation under Section 848A TCA 1997 provided the donation is for the sole purpose of providing funds for the institution such that the gross payment would be treated as a deductible trading expense (Section 848A(4) TCA 1997).

3) This is the credit for the DIRT withheld on the Case IV interest income.

Tax Return Entries:

In the CTI the company would declare the following:

1. Case I income of €182,000

2. Relevant trade charges of €10,000

3. Case III of €1,000 and Case IV of €8,000

4. s. 239 TCA 1997 income tax withheld of €6,000

5. DIRT suffered of €2,960

Accounting Journal Entries:

Cr: Corporation Tax Liability – Statement of Financial Position - total tax due €26,790
Dr: Corporation Tax Expense – Statement of Comprehensive Income – tax on profits €23,750
Cr: DIRT Refundable – Statement of Financial Position €2,960
Dr: Royalties – Statement of Comprehensive Income – add income tax withheld €2,000
Dr: Covenants – Statement of Comprehensive Income – add income tax withheld €4,000

Task 9.1

A Ltd, had the following results for the year ended 31st December 2018:

Case I taxable profits 100,000
Net interest received 10,103
Income tax deducted at source @ 37% 5,933
Patent royalty paid 20,000
Income tax withheld by A Ltd 5,000
Chargeable gain (as adjusted) 5,000

Calculate A Ltd’s net corporation tax liability, tax return entries and accounting journals entries.

9.3.2.Rents payable to non-resident landlords

Example 9.3

A Ltd rents its Dublin warehouse from a UK resident landlord. Under Section 1041 TCA 1997 the company must withhold income tax from the gross rental income.

A Ltd’s rent is €1,000 per month. Therefore €2,400 is deducted prior to paying the landlord (€12,000 × 20%). The rent charge of €12,000 is fully allowed in calculating the company’s trading income and the €2,400 is due to be paid with withholding tax due under Section 239 TCA 1997 along with the corporation tax for the period.

Tax Return Entries:

In the CTI the company would declare the following:

1. Section 239 TCA 1997 income tax withheld of €2,400

Accounting Journal Entries:

Cr: Corporation Tax Liability – Statement of Financial Position - total tax due €2,400
Dr: Rent Payable – Statement of Comprehensive Income – tax withheld on rent €2,400

9.3.3.Professional services withholding tax

Example 9.4

B Ltd provides professional services to the Department of Finance within the meaning of Section 520 TCA 1997. The fees for the year ended 31 December 2018 are €100,000, this is B Ltd’s sole source of income.

The Department pays B Ltd €80,000 and provides it with F45’s to the value of €20,000.

B Ltd’s corporation tax liability for the year ended 31 December 2018 is as follows:

Case II €100,000
Tax at 12.50% €12,500
PSWT credit (€20,000)
Refund due  (€7,500)

The PSWT credit is claimed in the company’s corporation tax return and the refund will be processed via the notice of assessment. The F45’s may be requested by Revenue for verification purposes.

Tax Return Entries:

In the CTI the company would declare the following:

1. Case II income of €100,000

2. PSWT suffered of €20,000

Accounting Journal Entries:

Dr: Corporation Tax Asset –Statement of Financial Position - total tax refund due €7,500
Dr: Corporation Tax Expense – Statement of Comprehensive Income – tax on profits €12,500
Cr: Accounts Receivable – Statement of Financial Position – F45 deducted as payment €20,000

9.3.4.Relevant contracts tax

Example 9.5

B Ltd provides blocklaying services to a builder and is therefore subject to withholding tax under Section 530 TCA 1997. The charges for the year ended 31 December 2018 are €100,000. This is B Ltd’s sole source of income. Due to a tax problem in 2017 the Inspector of Taxes instructs the principal to deduct tax at 35%.

The builder pays B Ltd €65,000 and provides deduction authorisations to the value of €35,000.

B Ltd’s corporation tax liability for the year ended 31 December 2018 is as follows:

Case II €100,000
Tax at 12.5% €12,500

The RCT credit is not claimed in the company’s corporation tax return. In this situation the €35,000 withheld will be set against the corporation tax liability of €12,500. The excess of €22,500 will be refunded to the company, subject to there being no other taxes outstanding.

Tax Return Entries:

In the CTI the company would declare the following:

1. Case I income of €100,000

Accounting Journal Entries:

Cr: Corporation Tax Liability - total tax due €12,500
Dr: Corporation Tax Expense– tax on profits €12,500
Cr: Accounts Receivable– RCT deducted as payment €35,000
Dr: Short Term Assets – Withholding Tax Repayable €35,000

An alternative treatment would be to set the €35,000 RCT against the CT due of €12,500 leaving a balance refundable of €22,500 (similar to the PSWT treatment in the above example). However, as RCT is a more flexible type of withholding tax, in that it can be set against any other tax or refunded, it is usually shown separately.

9.3.5.Capital gains tax

Example 9.6

D Ltd sold development land in County Dublin for €750,000 to Mr. Green, generating a development land gain of €42,000 in September 2018.

As D Ltd did not apply and receive a clearance certificate prior to the sale and give same to Mr. Green, Mr. Green is obliged to withhold tax of €112,500 (15% of €750,000) from the sale proceeds and account to Revenue for this amount within 30 days of paying the consideration to D Ltd.

D Ltd will have a capital gains tax liability of €42,000 × 33% = €13,860. The tax withheld of €112,500 is set against the liability of €13,860 and the excess of €98,640 will be refunded.

Tax Return Entries:

In the CTI the company would declare the following:

1. Capital Gain of €42,000

The Inspector of Taxes, when issuing the notice of assessment would allow the CGT paid by Mr Green on account and issue a refund payment.

Accounting Journal Entries:

Dr: Corporation Tax Asset – Statement of Financial Position - total tax refund due €98,640
Dr: Corporation Tax Expense – Statement of Comprehensive Income – tax on sale €13,860
Cr: Sale of Investment – Statement of Comprehensive Income – add tax withheld to proceeds €112,500

Task Answer

Task 9.1

Corporation tax computation:

Case I
100,000
Less: Relevant trading charges (25,000)
75,000
Case IV (10,103 + 5,933) 16,036
Total income 91,036
Chargeable gain 5,000
Taxable profits 96,036
Corporation tax
€16,036 @ 25% 4,009
€5,000 @ 12.5% 625
€75,000 @ 12.5% 9,375
14,009
Add: income tax deducted on patent royalty 5,000
Deduct: income tax suffered on interest received (5,933)
Net corporation tax liability 13,076

Tax Return Entries:

In the CTI the company would declare the following:

1. Case I income of €100,000

2. Relevant trade charges of €25,000

3. Case IV of €16,036

4. Chargeable Gains of €5,000

5. Section 239 TCA 1997 income tax withheld of €5,000

6. DIRT suffered of €5,933

Accounting Journal Entries:

Cr: Corporation Tax Liability – Statement of Financial Position - total tax due €13,076 Dr: Corporation Tax Expense – Statement of Comprehensive Income – tax on profits €14,009
Cr: Interest Received – Statement of Comprehensive Income – add dirt to interest €5,933 Dr: Royalties – Statement of Comprehensive Income – add income tax withheld €5,000